IMF: Canada banks avoid global banking crisis thanks to regulation

The International Monetary Fund said European banks may need to sell as much as US$4.5-trillion in assets through 2013 if policy makers fall short of pledges to stem the fiscal crisis, up 18% from its April estimate.

Failure to implement fiscal tightening or set up a single supervisory system in the timing agreed could force 58 European Union banks from UniCredit SpA to Deutsche Bank AG to shrink assets, the IMF said. That would hurt credit and crimp growth by 4 percentage points next year in Greece, Cyprus, Ireland, Italy, Portugal and Spain, Europe’s periphery.
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When it comes to Canadian banks, it turns out that bigger isn’t necessarily better.

Our financial institutions are among the few in the world that have so far avoided the growing crisis in the sector. That we know; Finance Minister Jim Flaherty has made a point of reminding Canadians.

Part of the reason for the relative health of Canadian institutions, according to a report by the International Monetary Fund, can be attributed to limited exposure to international banking operations. But the IMF, meeting in Tokyo, says in a report released Wednesday that Canada’s restrictions on mergers of major domestic banks have also played a big part.

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In its Global Financial Stability Report, the IMF looks at those connections and concludes that banks in Canada and Australia “relied far less on foreign liabilities than most peer groups before the [financial] crisis” and that regulatory policies in Australia and Canada “share some features that might have resulted in less globally integrated banking systems.”

“One important policy they have in common is the de facto prohibition of mergers among the major domestic banks,” the report says.

“While its primary objective is to retain competition, the prohibition has prevented an increase in the size of these banks and the creation of national ‘champions’ that could compete with major global financial institutions. This may have been a factor limiting their banks’ international activities.”

The IMF groups Canada and Australia in a peer group of banks that includes India and Malaysia.

The report goes on to say Canada and Australia “also impose restrictions on shareholder ownership, which limits acquisition of domestic banks by either other domestic banks or foreign ones, although establishment of subsidiaries and branches of foreign banks are not restricted, except on prudential grounds.”

In Canada, a “widely held rule” prohibits a single shareholder — domestic or foreign — from owning more than 20% of voting rights in a major bank, the report says.

In Australia, purchases above 15% require approval from banking authorities following a review of prudential requirements, the implications of foreign ownership and impact on competition, according to the IMF. India and Malaysia restricts most foreign bank operations.

Terry Campbell, president of the Canadian Bankers Association, said there are many reasons why banks in this country “largely avoided the problems that have plagued banks elsewhere.”

In 1998, the Liberal government blocked the proposed merger of Royal Bank of Canada and Bank of Montreal, as well as the planned tie-up between Canadian Imperial Bank of Canada and Toronto-Dominion Bank.

Paul Martin, who was finance minister at the time, cited concerns over too much control being in the hands of fewer banks, less competition and reduced flexibility for the government to address future concerns in the sectors.

With the evolution of the lithium-ion battery and pending availability of an affordable electric vehicle, we decided it was a good time to produce a Ubika Battery Metals Index, comprised of 10 lithium and 10 cobalt companies.

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